Nigeria’s national mission to achieve 70% broadband penetration by 2025 is facing a dysfunctional foreign exchange (forex) market.
The country’s broadband penetration as at November 2023 was 41.87%, according to the Nigerian Communications Commission (NCC).
Between the global financial market and local ventures in Nigeria, there is a huge connection influencing various sectors, including internet broadband expansion, mostly impacting startups in the telecommunication industry.
Uche Paragon, a Financial Market expert, popularly known as the wealthiest trader in Nigeria, emphasized this fact, noting that the sector has had a more positive than negative impact in the telecoms sector in years.
“The awareness we’re having in Nigeria now, and the kind of volume that Nigerian investors are leveraging on in terms of fintech trends and services, it’s because of a broad expansion of technology. In fact, 90% of retail clients in Nigeria use mobile phones to access the market.”
He emphasized that younger people are taking a more active role in the financial market than those who prefer traditional methods of business in Nigeria. As a result, the fintech industry is now dominated by the youth.
This may be why most millennials in business who use fintech are under the age of 42. The widespread availability of the internet, despite challenges, has brought about massive adoption and growth in the sector.
Despite these positive impacts, industry analysts are increasingly concerned that the current forex challenges could greatly affect the rollout of essential infrastructure and suffocate the growth of the vital telecoms sector, ultimately derailing the nation’s broadband aspirations.
Tony Emoekpere, president of the Association of Telecommunications Companies of Nigeria (ATCON), noted that the forex crisis has taken a toll on all operators, with smaller players bearing the brunt.
Making this fact more pronounced, Airtel’s recent financial report revealed a 1.4% revenue decline from $3.91 billion to $3.86 billion in the same period of 2023.
Meanwhile, 9Mobile, the fourth largest operator, experienced a drought in data subscription revenue, with figures plummeting to 3.81 million as of September 2023, marking a 127% decline from its peak of 17.1 million subscribers recorded in April 2016.
In November 2023, broadband penetration was 41.87%, marking a 14.2% decline from its peak of 48.28% in March 2023. Falling short of the 50% penetration target for 2023, the industry now faces a 28% gap in achieving the 70% target set for 2025.
Why the increasing difficulty? Limited access to US$ dollars, a direct consequence of the Central Bank of Nigeria’s (CBN) floating the naira creates a big barrier for telecom operators desperate to import essential equipment and services like base stations, fiber optic cables, and satellite technologies which are essential for expanding broadband coverage.
This scarcity drives costs sharply upwards, forcing operators to seek dollars on the parallel market at significantly higher rates.
Again, the prevailing forex uncertainties have cast a pall of cautiousness over the investment sector. With the path to dollar access being hindered and the potential for further currency devaluation being imminent, telecom operators are hesitant to commit large-scale investments. This creates a vicious cycle, where the lack of investment hinders progress, which in turn strengthens the case for further restrictions, perpetuating the problem.
The potential consequences of missing the 70% broadband target are far-reaching and paint a concerning picture.
Broadband penetration is widely recognized as a linchpin for economic growth. If Nigeria falls short of its target, it risks stunting its digital transformation efforts and limiting its economic potential. This would have a ripple effect across various sectors, impacting everything from job creation to financial inclusion.
The social impact of missing the target is equally worrisome. Limited broadband access would exacerbate the existing digital divide, leaving large segments of the population excluded from essential online services like education, healthcare, and financial inclusion. This would widen the gap between the digitally empowered and the marginalized, potentially exacerbating social inequalities.
On the global stage, falling behind in broadband penetration could erode Nigeria’s competitiveness, causing a hindrance to the country’s participation in the global digital economy. In an increasingly interconnected world, this could have significant ramifications for Nigeria’s standing and influence.
But Uche Paragon says investors are not giving up. Speaking on VC’s decisions to invest in Nigeria startups, he said: “The widespread use of mobile phones (90% of retail clients) has fueled the development of apps, facilitating inclusion even in remote areas, bridging the gap and connecting previously excluded populations.
Venture capitalists are increasingly recognizing the potential of startups in the financial market, and providing needed funding for innovation and growth, fueling the engine of progress despite challenges.”
Paragon didn’t fail to point out an important factor that influences VC’s decisions. “There’s no regulation, no proper legal structure equals the venture capitalists.”
The impact of regulation on startup businesses, particularly in the telecom sector, has been mixed.
“Regulations are not restrictive measures; they are intended to ensure that businesses operate ethically and profitably. Adhering to regulatory frameworks may initially delay processes but ultimately facilitates credibility and attracts positive policies conducive to business success,”
“Conversely, the absence of proper regulation and legal structure can deter venture capitalists and hinder business growth. Despite these drawbacks, startups that scale through regulatory complexities effectively often thrive in the market.
While acknowledging the challenges, it is important to recognize the opportunities inherent in regulatory compliance, which can ensure innovation and sustained success in the telecom sector.”
Fortunately, there are potential solutions on the horizon. Addressing the FX challenges through market reforms is important.
The CBN needs to implement measures that improve transparency, flexibility, and access to dollars for the telecoms sector.
This could involve creating a dedicated forex window for critical imports or relaxing restrictions on accessing foreign exchange.
Paragon said that globalization can abolish border controls and create rules for borderless businesses. “Some investors don’t necessarily have to be in your country to do business with you, they can be elsewhere and do business in your own country.”
However, he noted that policies can affect investors from coming in, but it depends on the structure of the sector.
Exploring alternative funding sources is another avenue worth pursuing. Local currency financing or partnerships with international development agencies could help mitigate the impact of FX constraints and keep projects moving forward.
Additionally, the government can provide policy and regulatory support to incentivize investment in broadband infrastructure. Tax breaks, subsidies, or streamlined licensing procedures could make investing in broadband a more attractive proposition for operators.
Paragon concluded by saying that “Nigeria is at the edge of passing through the process of digital disruption and the process has begun, which is why you see an economic crisis. It is a very positive impact because of the concept of digitalization of economies and globalization of economy.”
Nigeria’s ambition to achieve a 70% broadband penetration by 2025 is imperiled by the challenges within its foreign exchange (forex) market, linked to the global financial industry.
As emphasized by Uche Paragon, the youth-driven fintech industry has seen impressive growth, bolstered by increased internet accessibility and mobile phone usage.
Nonetheless, the current forex crisis poses a huge threat to the telecom sector, manifesting in declining revenues and faltering broadband penetration rates.
The ramifications of missing the broadband target extend beyond economic concerns, encompassing social disparities and global competitiveness.
While regulatory challenges and FX constraints bring about tough obstacles, opportunities for reform and alternative financing avenues are a positive light.
On the other hand, should telecommunication companies (i.e. the MNOs) squeeze out funds from investors to deploy infrastructure and the subscribers’ purchasing power keep deteriorating, such will impact negatively on the ROI.
In turn, the MNOs might abandon some (expansion) projects. We understand there are provisions like the USP-funds, but subscribers are still meant to pay for the services to recoup the taxes for the government and the investors’ funds!
Through strategic market reforms, improved transparency, and targeted policy interventions, Nigeria can scale through the forex challenges, ultimately facilitating broadband expansion.
Embracing the digital disruption underway, Nigeria can achieve sustainable growth and enhanced connectivity, provided stakeholders collaborate effectively to address the multifaceted issues at hand.